Recently, Congress enacted the CRA and HMDA to ensure fairness in lending by financial institutions. CRA regulations requiring the reporting of small business lending for legal entities in the United States went into effect Jan. 1, 1996, for data collection. Additional regulations went into effect on Jan. 1, 1997, for initial reporting and on Mar. 1, 1997, for data submission reporting. The requirements apply to small business and farm loans, community development loan data, and data on lending by consortium or a third party. In addition, some financial institutions may elect to report consumer loans and affiliations. The HMDA requires similar reporting regarding home mortgages. Accordingly, all U.S. legal entities processing qualifying loan originations and purchases, credit line increases, annual renewals, or maintenance for these entities are required to begin methodically reporting qualified data to a collection unit as of Jan. 1, 1996. In addition, the following products will be processed as well: all liability products (consumer and Business & Professional (B&P)) that are Federal Deposit Insurance Corporation (FDIC) insured, Community Development loans, affiliate lending, and service transactions.
The CRA and HMDA require detailed reporting regarding the lending to individuals based on their geography and financial status. While compliance with these acts is relatively easy for a small bank with a single branch, it is extremely complex for a large bank with many branches and single function offices dispersed throughout the country. It is even more difficult for a global financial institution with offices located all over the world.
As noted above, specific reporting requirements under the CRA/HMDA include: 1) Small Business and Farm Loans; 2) Community development loan data; 3) Data on Lending by consortium or a third party; and 4) Home Mortgage loans. Small Business and Farm Loans are those with gross annual revenues of $1 million or less based on revenues that the bank used in making the credit decision. For a banking institution, these loans can include the following: Loans Originated or Purchased; Business Ready Credit and Checking Plus loans; Tailored Lines and Loans; Monthly Payment Business Loans; and Mortgages.
In addition to required reporting, optional data collection and maintenance methods are allowable under the CRA/HMDA. These data collection and maintenance options may be categorized into five broad areas: 1) consumer loans; 2) other loan data; 3) data on affiliate lending; 4) assessment area data; and 5) CRA disclosure statement.
For consumer loans, a financial institution may choose to collect data originated or purchased for consideration under the lending test. The institution's reporting include one or more of the following categories: 1) motor vehicle (including indirect business); 2) other secured (installment); 3) credit card (affiliate lending) business and consumer; 4) home equity; and 5) unsecured. If a portion of a credit line (e.g., home improvement loan) is reported under HMDA and another portion meets the definition of a small business loan, the full amount of the line of credit should be reported as a small business loan. The agencies will also consider as a home mortgage loan the portion of the credit line that is reported under the HMDA.
For data on affiliate lending, the bank may elect to report for consideration loans by any of its affiliates, such as bankcards, leasing, franchises, student loans, and mortgages. Data must be maintained separately by each category and include the following for each loan: 1) unique alpha/numeric loan number; 2) the loan location; and 3) the gross annual income of the borrower/co-borrower that the bank considered in making the credit decision. For some loan data the bank must provide information concerning its lending performance, including additional loan distribution data.
For assessment area data, the bank must collect and report all data to the Federal Reserve Board starting Mar. 1, 1997, for each assessment area showing the geographies within the areas. For the CRA Disclosure Statement, the Federal Reserve Board will generate annually a CRA Disclosure Statement for each bank on a state-by-state basis. An assessment area consists generally of one or more Metropolitan Statistical Areas (MSAs) or one or more contiguous political sub-divisions such as counties, cities, or towns, and includes the geography in which the bank has its main office, branches, deposit taking Automatic Teller Machines (ATMs), as well as the surrounding geographics in which the bank has originated or purchased a substantial portion of its loans, including home mortgage loans, small business and farm loans, and any other loans the bank chooses (e.g., consumer loans on which the bank elects to have its performance assessed).
Under federal law, each bank's assessment area must consist only of whole geographies and may not reflect illegal discrimination. In addition, the assessment may not arbitrarily exclude low or moderate income geographics or extend substantially beyond a MSA boundary, or beyond a state boundary, unless the assessment area is located in a multi-state MSA.
In general, large financial institutions have a need for automated systems and methods for centralizing all CRA/HMDA reporting. This need has not been met by the current art because such financial institutions typically have disparate businesses, affiliates, products, customers and systems, and these hurdles have prevented development of single CRA/HMDA repositories and encompassing processes to handle internal Management Information System (MIS) and federal filing needs. Such system needs include not only management of the complex organizational and product sets, but also the extremely large volume of loan records these types of financial institutions must report.
A problem with existing art is that, for most banks, there is no central unit responsible for the tracking, reporting and analyzing of data for CRA and HMDA. However, for some banks, some data pertaining to CRA and HMDA may nevertheless be tracked based other criteria, such as for preparation of reports to marketplace managers and board of directors.
Another problem with existing art is that a number of factors may complicate identification of reporting data. For example, there may be multiple databases currently in use to report under the CRA and HMDA, even for a typical banking institution for which data is maintained and organized by computer databases. These databases may be used independently for tracking data, and in some cases there may be no reconcilement to ensure data integrity. Data may be difficult to obtain in a timely fashion, and, depending on the source, may be somewhat in question.
Another problem is that single purpose offices, such as those located in remote locations for processing credit cards, may further complicate compliance for large financial institutions. All data for each of these offices may be collected by hand and then reported to the bank regulators separately. Since each office may prepare its report without the benefit of data from the other offices, compliance may only be analyzed on a per office basis and at the end of a year, at which time no action can be taken to ensure compliance if the financial institution is out of compliance.